What happened
Shares of Insys Therapeutics, Inc. (INSY +0.00%) soared 17.1% on Wednesday after the biotech announced that it had reached an agreement in principle with the U.S. Department of Justice (DOJ) to settle a civil and criminal investigation into past sales and marketing practices.
The DOJ began an investigation in late 2013 related to Insys' sales and marketing efforts for opioid drug Subsys. Insys stated that with the pending settlement agreement the company would pay $150 million over a five-year period. It may also have to make contingency-based payments "associated with certain events" that Insys' management thinks could be up to $75 million. In addition, a final settlement would likely include other nonfinancial terms and conditions.
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So what
The agreement in principle with the DOJ is important for Insys for a couple of key reasons. First, it could close out an ugly chapter in the biotech's history. The executives that led Insys during the period when the alleged inappropriate sales and marketing practices occurred are no longer with the company. Most of the sales team from that time are also gone.
Insys' management team has said that its top priority was to resolve the ongoing investigation and rebuild the company's reputation. With the prospects of a settlement with the DOJ now on the horizon, the biotech's executives should now be able to focus on executing the rest of their strategy.
The second reason the pending DOJ settlement is important is the price tag. Insys already set aside $150 million in the third quarter of 2017. At the time, the company stated that it thought that would be the minimum amount required to resolve the issue. As long as the investigation continued, the fear remained that Insys might have to pay much more in a settlement. Although it could have to fork over more money in contingency-based payments, investors' fears should now be pretty much laid to rest.
Now what
Insys and the DOJ haven't signed an agreement yet, so some anxiety could remain until the ink is dry on the deal. However, it's definitely great news for the biotech to be on the verge of removing the dark cloud that has been hanging over it.
The big question now for Insys is how quickly it can return to growth. Insys' revenue continues to plunge with declining sales for Subsys and very slow sales growth for cannabinoid drug Syndros. Until the biotech can demonstrate that it has a clear pathway to growth, I think that investors are better off watching from the sidelines.
